acct 201 ch 7
a ____ is the exclusive right to manufacture a product or use a process granted for a period of ____ years
patent 20
The residual value of an intangible asset is usually ___
zero
The exclusive legal right to manufacture a product or to use a process is called a(n)
patent
True or false: Repairs and maintenance expenditures related to an asset do not increase future benefits.
true
Other terms used for an activity-based depreciation method are:
units of output method units of production method
a ___ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years
copyright
a ___ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.
copyright
a ___ is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book.
copyrights
The formula to calculate the depreciation for the units-of-production method (activity-based depreciation) is ((cost - residual value)/total estimated production) x ______.
current-year activity or production
A retirement or abandonment of an asset is different from a sale of an asset because
a loss must be recognized for the remaining book value. no cash is received
The original cost of an asset minus accumulated depreciation is
book value
The original cost of the asset less the accumulated depreciation is the ___ ___ of the assets
book value
When a company purchases another company and the purchase price is greater than the fair value of the net assets acquired, this excess is referred to as ______.
goodwill
The formula to calculate an activity-based depreciation rate is:
(cost - residual value)/estimated total production.
The formula for straight-line depreciation is
(cost - residual value)/service life.
deprecation depletion amortization
Allocation of the cost of a tangible fixed asset Allocation of the cost of natural resources Allocation of the cost of an intangible asset
Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?
Costs to remove an old building commissions Legal fees to secure title
Which of the following are long-term tangible assets?
Equipment Property
Which statement is true about the straight-line method of depreciation?
It allocates an equal amount of depreciation to each year the asset is used.
Straight-line, declining-balance, and activity-based refer to methods commonly used to ___ property, plant, and equipment
deprecate
The allocation of the cost of a tangible asset over its service life is referred to as ___
deprecation
The allocation of the cost of a tangible fixed asset is referred to as ___ whereas the allocation of the cost of an intangible asset is referred to as ___.
depreciation amortization
Goodwill may only be recognized
in a business acquisition
Companies use accelerated depreciation for tax purposes because
it reduces taxable income in the early years of the asset's life and provides better cash flows.
Long-term tangible assets include
land. buildings. equipment
Use of MACRS for tax purposes usually results in ___ income tax in the earlier years of an asset's life
less
The profit margin ratio is defined as ___ ___ divided by net sales
net income
Straight-line deprecation is calculated as the depreciable cost divided by
the estimated service life of the asset.
Which of the following are commonly used depreciation methods?
straight line activity based double-declining
What is the formula for the profit margin ratio?
net income/net sales
Which of the following does not differ among the different depreciation methods?
Total depreciation recognized over the asset's service life.
Units of production or units of output are alternative terms for the ___ ___ deprecation method
activity based
The formula for calculating the double-declining-balance method is
book value at beginning of year x 2/estimated service life
The depreciable cost of an asset is the asset's cost minus its estimated ___ value
residual
The term used to describe the amount the company expects to receive for an asset at the end of its service life is
residual value.
When an asset is no longer useful, but cannot be sold, we have a
retire
When an asset is no longer useful, but cannot be sold, we have a ___
retire
The formula for calculating declining balance depreciation is the depreciation rate per year times
the book value at the beginning of the year.
The depreciable cost is
the cost of the asset minus the residual value.
The service life or useful life of an asset is
the estimated use that the company expects to obtain from the asset before disposing of it.
Straight-line and declining balance methods allocate the cost of a long-term asset based on ___ while an activity-based method allocates the cost of an asset based on its ___
time use
Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land?
Costs to remove an old building Grading the land Legal fees to secure title Title insurance
True or false: Goodwill is the intangible value of a company's employees, management team, and business location that is recorded by the company.
false
The key factor in classifying items as repairs and maintenance is that
future benefits are not provided beyond those originally anticipated from the asset.
Goodwill is recognized only when one company ___ another company
purchases
Which depreciation methods allocate the cost of long-term assets based on time?
straight line declining balance
The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the
straight-line method.
Total depreciation recorded over an asset's service life is:
the same regardless of the depreciation method used
For accounting purposes, depreciation is
an allocation of a cost of an asset
The estimated use the company expects to obtain from an asset before disposing of it is referred to as the ___ life of the asset
useful
The residual value of an intangible asset is usually
zero
___ value is the amount the company expects to receive for the asset at the end of its service life
salvage
